JUDGMENT K. Bhaskaran, J. 1. The question of law referred to us for the opinion of this Court reads thus :- " Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of S.79 place a bar only on the carry forward and set off of losses and not of unabsorbed depreciation or unabsorbed development rebate?" 2. The assessee is a company in which the public are not substantially interested. For the relevant year, 1975-76, there were 9 share holders of the company for the accounting period ended on 31st March 1975. None of these share holders were share holders on 31st March 1974. 3. For the assessment year 1974-75, an amount of Rs. 61,754 was computed to be carried forward, under three heads : Rs. (i) unabsorbed depreciation 21,815 (ii) unabsorbed development rebate 17,186 (iii) business loss 22,753 The Income Tax Officer, relying on S.79 of the Income Tax Act, refused relief to carry forward any of these "losses". In appeal, the Appellate Assistant Commissioner held that development rebate and unabsorbed depreciation could be carried forward, notwithstanding S.79. The assessee appealed to the Tribunal. The Tribunal reasoned thus :- " There is a discussion in the commentary on the law and practice of income tax by Kanga and Palkhiwala, 7th Edition, Volume I at page 385 of the four features which distinguished a loss from unabsorbed depreciation. It is clear that the term 'loss' as used in Chapter VI does not include unabsorbed depreciation and development rebate. As a matter of fact, in S.72(2) unabsorbed depreciation is referred to expressly as an allowance under sub-s.(2) of S.32. The provisions of S.79 place a bar only on the carry forward and set off of losses and not of unabsorbed depreciation or unabsorbed development rebate........ In view of these finding of the A AC that neither unabsorbed depreciation nor development rebate can be carried forward we would give our finding that the carry forward of unabsorbed depreciation and unabsorbed development rebate is not hit by the provisions of S.79 in the present case and the bar operates only as in so far as the carry forward of unabsorbed loss is concerned as contra distinct from the other two items." 4. The reference is therefore made at the instance of the revenue and the answer to the question referred will depend on the crucial fact whether unabsorbed depreciation or unabsorbed development rebate constitute "loss" to attract the statutory bar under S.79 of the Act. 5. The counsel for the revenue submits that unabsorbed depreciation and unabsorbed development rebate are both "losses" and that the word 'loss' occurring in S.79 of the Act cannot have a restricted or a narrow meaning. Any loss-all commercial losses which include unabsorbed depreciation or unabsorbed development rebate-cannot thus escape the rigour of S.79, so contends counsel. 6. Let us therefore read section 79: "79. Carry forward and set off of a losses in the case of certain companies. Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless- (a) on the last day of the previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred; or (b) the Income Tax Officer is satisfied that the change in the shareholding was not effected with a view to avoiding or reducing any liability to tax". 7. Chap.6 of the Income Tax Act, as the heading de notes, relates to "Aggregation of income and set off or carry forward of loss". Set off of loss from one source against income from another source under the same head of income is provided in S.70, while set off of loss from one head against income from another is provided in S.71. Set off of loss from one source against income from another source under the same head of income is provided in S.70, while set off of loss from one head against income from another is provided in S.71. Business losses are mentioned in S.72, accumulated loss and unabsorbed depreciation allowance in certain cases of amalgamation of a company, is as per S.72A, losses in speculation business are in S.73, losses under the head "Capital gains" are dealt under S.74, losses from certain specified sources falling under the head "Income from other sources" are mentioned in S.74A, losses of registered firms are contained in S.75 to 78 and thereafter there is the non-obstante provision in S.79. S.79 overrides the other provisions in Chapter VI and not the other provisions in the Act itself as is clear from the opening words, "Notwithstanding anything contained in this Chapter". The connotation of the expression 'loss' occurring in S.79 has thus to be understood in the context of the provisions contained in Chap.6 itself. 8. Where a change in shareholding has taken place in a previous year in the case of a company (not being a company in which the public are substantially interested) no loss incurred in any year prior to the previous year, shall be carried forward and set off against the income of the previous year unless the conditions prescribed in clause (a) or (b) are satisfied. Loss which could be carried forward for any year prior to the previous year, for which specific provision is made in this Chapter cannot be so carried forward and set off unless the conditions specified in S.79 are fulfilled. The 'loss' mentioned in S.9 is thus relatable to the "loss" specifically provided for in the other provisions of the same Chapter. It is in respect of losses which could be carried forward and set off under this Chapter that S.79 operates to limit that set off only to the previous year in question without extending it to any prior years. 9. It is contended that S.72(2) in the same Chapter, relates to 'unabsorbed depreciation' or "unabsorbed development rebate" and thus S.79 is attracted to these heads of losses. 9. It is contended that S.72(2) in the same Chapter, relates to 'unabsorbed depreciation' or "unabsorbed development rebate" and thus S.79 is attracted to these heads of losses. S.72(2) reads thus: "Where any allowance or part thereof is, under sub-s.(2) of S.32 or sub-s.(4) of S.35, to be carried forward, effect shall first be given to the provisions of this section." S.72 provides for carries forward and set off of business losses and clause (2) of this section only provides a rule of priority under which set off of business losses shall have statutory preference over carry forward of allowances under S.32(2) or 35(4) of the Act. Even this provisions does not speak of 'unabsorbed depreciation' or 'unabsorbed development rebate' as losses; but describes them as "Allowances". 10. It is now necessary only to refer to the provisions which enable 'unabsorbed depreciation' or 'unabsorbed development rebate' to be carried forward. 'Unabsorbed depreciation' as an item or allowance which can be carried forward is specifically mentioned in S.32(2) and 'unabsorbed development rebate' is provided for in S.35(4), both the provisions occurring in Chap.4 of the Act. The Act does not treat or describe 'unabsorbed depreciation' or 'unabsorbed development rebate' as losses and these items cannot be treated as losses for purpose of S.79 alone. By excluding 'unabsorbed depreciation' or 'unabsorbed development rebate' from the content of the expression 'losses' in S.79, there is no attempt to give any narrow interpretation to the word "loss". It cannot have, in any case, a wider definition to include items which arc in fact not losses under the Act, at least for the purpose mentioned in Chap.6. 11. There is no case before us that clauses (a) and (b) of S.79 are attracted. We are not called upon to consider whether these clauses are disjunctive or cumulative. The bar imposed under the main part of S.79 is not attracted, as S.79 does not apply to 'unabsorbed depreciation' or 'unabsorbed development rebate'. 12. The counsel for the revenue cited Laxmichand Jaiporia Spinning and Weaving Mills, In re [ (1950) 18 ITR 919 ], a decision of the East Punjab High Court. 13. The Supreme Court was construing S.10(2)(vi) and proviso (b) to section 24(2) of 1922 Act [corresponding to S.34(2)(i) and 72 of the 1961 Act] in C.I.T. v. Jaipuria China Clay Mines (P) Ltd.[ (1966) 59 ITR 555 ] wherein it was observed thus: "......... 13. The Supreme Court was construing S.10(2)(vi) and proviso (b) to section 24(2) of 1922 Act [corresponding to S.34(2)(i) and 72 of the 1961 Act] in C.I.T. v. Jaipuria China Clay Mines (P) Ltd.[ (1966) 59 ITR 555 ] wherein it was observed thus: "......... The second consideration which is relevant is that the Act draws no express distinction between the various allowances mentioned in S.10(2). They all have to be deducted from the gross profits and gains of a business. According to commercial principles, depreciation would be shown in the accounts and the profit and loss account would reflect the depreciation accounted for in the accounts. If the profits are not large enough to wipe off depreciation, the profit and loss account would show a loss. Therefore, apart from proviso (b) to S.10(2)(vi), neither the Act nor commercial principles draw any distinction between the various allowances mentioned in S.10(2); the only distinction is that while the other allowances may be outgoings, depreciation is not an actual outgoing. x x x The unabsorbed depreciation allowance is carried forward under proviso (b) to S.10(2)(vi) and the method of earring it forward is to add it to the amount of the allowance or depreciation in the following year and deeming it to be part of that allowance is that it falls in the following year within clause (vi) and has to be deducted as allowance. If the legislature had not enacted proviso (b) to S.24(2), the result would have been that depreciation allowance would have been deducted first out of the profits and gains in preference to any losses which might have been carried forward under S.24, but as the losses can be carried forward only for six years under S.24(2), the assessee would in certain circumstances have in his books losses which he would not be able to set off. It seems to us that the legislature in view, of this, gave a preference to the deduction of losses first. But it is wrong to assume that S.24(2) also deals with the carrying forward of depreciation. This carry forward having been provided in S.10(2)(vi) and in a different manner, S.24(2) only deals with losses other than the losses due to depreciation". 14. We are afraid that the observations support the assessee rather than the revenue. 15. But it is wrong to assume that S.24(2) also deals with the carrying forward of depreciation. This carry forward having been provided in S.10(2)(vi) and in a different manner, S.24(2) only deals with losses other than the losses due to depreciation". 14. We are afraid that the observations support the assessee rather than the revenue. 15. The view we take has the support of the Madras High Court in its decision in C.I.T. v. Concord Industries Ltd. [(1979) 119 ITR 450] which in turn followed its earlier decision in C.I.T. v. Madras Wire Products [(1979) 119 ITR 454] and which again, in its turn, followed an earlier decision in C.I.T. v. Nagapatinam Import and Export Corporation [(1979) 119 ITR 444] in which it is held thus: "However, the Act thus makes a distinction between the unabsorbed allowance of depreciation and other losses. It has already been seen that S.72(2) of the Act provides that were any allowance or part thereof is, under sub-s.(2) of S.32 or sub-s.(4) of S.35, to be carried forward, effect shall first be given to the provisions of S.72. In other words, S.72(2) contemplates the loss other than the unabsorbed depreciation being given a priority in the matter of set off, as there is a time limit within which such loss can be adjusted. Under S.72(3) the loss other than from depreciation is eligible for being carried forward and set off only for a period of eight assessment years immediately succeeding the assessment year for which the loss was first computed; in the case of unabsorbed depreciation allowance, there is no such time limit. The legislature has, therefore, made specific provision for priority in setting off the loss other than the unabsorbed depreciation allowance so that the unabsorbed depreciation allowance can be carried forward if necessary without any time limit and set off in the appropriate succeeding years. It is thus clear that there is a separate identity maintained under the statute with reference to the unabsorbed depreciation allowance though at the time of computation it forms part of 'loss'. It is thus clear that there is a separate identity maintained under the statute with reference to the unabsorbed depreciation allowance though at the time of computation it forms part of 'loss'. It may be that at the time of allocation among the partners the unabsorbed depreciation is taken along with any other loss that may have been sustained by the registered firm; but this identity of unabsorbed depreciation is required to be maintained in order to enable it to be set off against the future income separately and independently of the other losses. If we approach the construction of S.32(2) in the light of the above background, there appears to be no difficulty in construing the reference." 16. So also the Gujarat High Court in C.I.T. v. Shri Subhlaxmi Mills Ltd. ((1976) Tax 45 (3) - 201) held thus: ".......... S.79 contemplated that no loss incurred in any year prior to the previous year can be carried forward if the other conditions of S.79 are satisfied. This S.79 forms part of Chap.6 and it is connected with the carry forward and set off of losses which are provided for in S.72 onwards. Moreover, S.32(2) which deals with depreciation allowances and carrying forward of unabsorbed depreciation allowance and S.32(2) which deals with carrying forward of development rebate which has not been absorbed in the preceding assessment year, deal with certain allowances being made while computing the total income from profits and gains from business. These are allowances which are being permitted to the assessee and it is very difficult to say that a depreciation allowance is incurred or development rebate is incurred in view of the language of S.32 and S.33. It must be held that depreciation is allowed and development rebate is allowed if the conditions of the relevant section are satisfied but they are not incurred by the assessee. Therefore, by use of the word 'Loss incurred' and the reference to the Chapter in which S.79 occurs, it is obvious that the contention urged on behalf of the revenue that the provisions of S.79 apply to unabsorbed depreciation allowance which has been carried forward or to unabsorbed development rebate which has been carried forward from immediately proceeding assessment year, must be rejected. In our opinion, on a pure grammatical construction, in view of the reference to the Chapter, incurring of losses and in view of the fact that S.79 forms part of the whole scheme adumbrated from S.72 onwards, this contention urged on behalf of the revenue must be rejected." In the result, we answer the question in the affirmative and in favour of the assessee and against the Revenue. The assessee will be entitled to costs. A copy of this judgment shall be sent under the seal of the Court and the signature of the Registrar to the Income Tax Appellate Tribunal, Cochin Bench.